MNI REALITY CHECK: US Retail Sales Slowing After Strong Summer

U.S. retail sales likely rose only modestly in October, figures due Tuesday should show, as resurgent Covid-19 cases across the nation and waning prospects for another stimulus package before the end of the year curbed demand and spending, industry experts told MNI.

Vehicle sales growth was relatively stagnant in October, although year-to-date sales were still down less than 10%, a significant improvement over higher double-digit declines seen in the springtime, said Michelle Krebs, an analyst at online vehicle retailer Autotrader.

New vehicle sales in October reached a seasonally adjusted annual rate of 16.2 million, according to data from Autotrader's parent company Cox Automotive. September sales stood at an annualized 16.3 million.

Krebs said sales of new vehicles priced below USD30,000 were depressed in October, with consumers favoring cars, trucks, and sport utility vehicles that cost between USD30,000 and USD60,000. Sales of luxury vehicles through the month also performed "quite well," she said.

"The auto industry is a perfect example of a k-shaped recovery in that people with money are spending that money, and people who don't have money, who have suffered job losses, who possibly have poorer credit, are out of the market," Krebs said.

Tightening inventory levels will continue to push up the cost of new and used vehicles, pricing even more people out of the market, she added, a trend that has been accelerated by the Covid-19 pandemic. "Long before Covid, affordability was becoming a significant challenge, and the pandemic has made that even more so."

Excluding motor vehicles, retail sales should increase 0.6% in October, according to Bloomberg.

APPAREL SALES MODERATING

Apparel sales likely improved in October, but still declined from a year earlier, though year-over-year declines have been moderating in recent months, said Gary Raines, chief economist at the Footwear Distributors and Retailers of America, a Washington-based trade association representing more than 90% of the U.S. footwear industry.

A resurgence of Covid-19 in October prompted new business restrictions in some areas and likely influenced consumers nationwide to shy away from brick-and-mortar stores, turning instead to online retailers, he said. Still, online sales make up only a fraction of the market, and won't be enough to buoy total sales through the month.

The U.S. last week reported 1 million new Covid-19 cases in a single week. The nation's case count stood at 11.1 million as of Monday afternoon, according to Johns Hopkins University.

"That will remain a severe hindrance on demand across a lot of the retail spectrum, but certainly on discretionary purchases like footwear," Raines said.

FUEL DEMAND

October gasoline demand fell slightly from September, down 2.1% when adjusted for an extra weekend last month, said Patrick De Haan, head of petroleum analysis at Gasbuddy, which tracks real-time gasoline prices from stations across the U.S., though demand still stands above its seasonal average.

"Traditionally, from September to October, you may see a 3% or 4% drop," De Haan said. "So the fact that we're down just 2% highlights the fact that Americans are feeling a little bit safer about getting out during coronavirus, but you're still seeing some of the seasonal trends persist."

De Haan said fuel demand is within 87% to 90% of year-ago levels, and an effective Covid-19 vaccine is critical to recovering the last 10%, though that could take a while as the on-going health crisis lengthens the softening of demand.

"The longer we progress without a vaccine, the more potential there is that at least some portion of demand will perhaps never come back," he said.

Excluding motor vehicle and gas station sales, October retail sales should rise 0.7% following a 1.5% increase in September.

The 0.5% month-over-month gain for overall retail sales forecast by Bloomberg would equate to less than half of September's stronger-than-expected 1.9% increase, underlining the renewed weakness in the retail sector.